Video: A primer on national debt

posted at 12:15 pm on May 12, 2010 by Ed Morrissey

The Center for Freedom and Prosperity released another of its Econ 101 videos intended on teaching Americans the basics of economics and the data on our current trajectory towards bankruptcy. Kelly McDonough narrates today’s lesson on debt and future liabilities, a rather timely lesson in the wake of Greece’s collapse. Kelly may seem young to have this grasp of macroeconomics, but she should — she’ll be paying for our spending, and so will her children and their children as well:

In case you can’t attend this lecture due to restrictions on video playback, I’ll supply you with the class notes:

Average annual budget deficits over the next ten years: >$1 trillion, or $1,000,000,000,000

Debt as share of GDP by 2020: 90% (Greece is at 113% today)

Unfunded liabilities: between $50 trillion and $106 trillion

It’s everyone’s fault

There will be a test on this subject matter. Your grandkids will administer it to you.

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Based on a Zogby International online survey of 4,835 American adults, Columbia University psychologist Zeljka Buturovic and George Mason University economist Dan Klein find that economic enlightenment is not correlated to going to college.

They also find that it is the highest among those self-identifying “conservative” and “libertarian,” and descends through “moderate,” “liberal,” and “progressive.”

It’s depressing. I’ve been emailing with a liberal friend who thinks that Obama is actually being “pragmatic” about spending and the healthcare law will help bring down spending. Dear lord with people like this running around and voting we are all screwed.

3. At least for now, America doesn’t have nearly as much debt as Greece and, countries with similar amounts of debt don’t necessarily collapse.

The United States Public Debt, the kind of debt that taxpayers really pay net interest on, is at a worrisome 67 percent of GDP and, if current projections hold (which they probably won’t) is only expected to hit about 75 percent in the next few years. Greece ran into trouble and saw credit downgrades when debt hit 125 percent of GDP. Even if the United States did run up a public debt like this—and that’s certainly within the realm of possibility—it won’t necessarily mean an immediate call for Greek-style austerity measures or a need for a rescue package. Japan, which, like the United States has many fundamental economic strengths, has a public-debt-to-GDP ratio approaching 200 percent and, although mired in a two-decade long stagnation, has seen little in the way of massive austerity (although that might have helped things) or civil unrest. Canada’s Debt-GDP ratio, in the early 1990s, also flirted with Greek-type levels and that country didn’t collapse either. Italy, as of mid-2009 (the last period for which there are comparable numbers) actually had more per-capita debt than Greece and still hasn’t faced a major crisis as a result. Debt levels like this lead to all sorts of problems. But they don’t necessarily lead to massive unrest or even permanent crisis. Similar debt crises in all of these countries would likely precede one in the United States and, quite possibly, lead to public consensus on measures to pull the country back from the brink.

we aren’t on a good trajectory, but doomsday isn’t ahead of us either.

jp on May 12, 2010 at 12:19 PM

When you’re on the road to socialism, doomsday is always the ultimate destination. The only question is how far away it is. Greece may be closer and Japan further away, but they’re both moving in that direction. As are we—and we can speed up at any time. Best to go somewhere else entirely, I would say.

Frum didn’t write that, although we shouldn’t close our minds to all of his views either for what its worth.

We held much more Debt during WW2, the point is there is much more to it than just the Debt.

Japan can carry 200% Debt to GDP because they actually produce something and people are willing to continue to buy their debt as they are likely to repay. Not so much with Greece, who is worthless with a citizenery who does not want to work and 30% of them work for the Government producing nothing.

One huge thing wrong with all of that. No where does it take into account that in the very near future we will be borrowing massive amounts of money to cover the unfunded liabilities of Social Security and Medicare. That only covers the current US debt. And as everyone knows Social Security went into the red this year and will stay there (and get much worse) every year into the future. Within the next 20 years we will need to come up with another $50-60 TRILLION in new borrowing to pay for those benefits. All that needs to be added into the calculation you linked too.

The only other way to avoid that kind of borrowing is to institute a crippling new tax.

Obama is the lefts Reagan. He will do the exact opposite of Reagan. When it’s all done, we will no longer have to debate whether big or small government is better, the facts will be right in front of all of us.

One major problem Conservative views on Debt, is that it generally looks at it from a Single-Entry Accounting viewpoint. An outdated, by about 5 centuries now, accounting standard.

We must think about Debt and Assets on the balance sheet, for the Country and Economy as a whole. We have ALOT of Assets in the US and a still growing Economy. Growth is a big key.

The Debt Doomsday projections, which is a profitable industry, make their projections assuming 0% growth, they are doing this on purpose IMO.

Double Entry Accounting is the standard by which to analyze our debt, under it, again we aren’t on a great projection for prosperiety but we aren’t on a doomsday path either. If Japan can hold 200% debt to GDP and not collapse, I’m sure the US can hold much more than 90% if it has too. In fact is has in the past.

Obama is the lefts Reagan. He will do the exact opposite of Reagan. When it’s all done, we will no longer have to debate whether big or small government is better, the facts will be right in front of all of us.

booter on May 12, 2010 at 12:38 PM

Unfortunately, liberals ignore facts in front of them if the facts are ‘inconvenient’. We know this, we’ve seen it on an endless list of different topics and policies.

I’m sure the US can hold much more than 90% if it has too. In fact is has in the past.

jp on May 12, 2010 at 12:40 PM

Yes the US held a much larger percentage of debt to GDP than now. However, the country was a manufacturing giant then. We had the factories and the distribution systems left over from WWII to exploit, and we took advantage of them. Instead of tanks, and jeeps, we started making cars, and seeling them all over the world in huge numbers. We led the world in exports well into the late 1970s. Those factories do not exist now, and from the looks of it, they are not coming back in the near future.

The Debt Doomsday projections, which is a profitable industry, make their projections assuming 0% growth, they are doing this on purpose IMO.

Double Entry Accounting is the standard by which to analyze our debt, under it, again we aren’t on a great projection for prosperiety but we aren’t on a doomsday path either. If Japan can hold 200% debt to GDP and not collapse, I’m sure the US can hold much more than 90% if it has too. In fact is has in the past.

jp on May 12, 2010 at 12:40 PM

… and *you* are also ignoring a great many factors that render the Japan (and other) comparisons meaningless.

Why are you ignoring these? Has Japan dealt with these issues as well? Has their government seemingly intentionally set about to destroy their private economy as ours has, pushing through much of the above in spite of the *fact* that it will “cause energy prices to skyrocket” (quote from Obama himself), devastate our economy, destroy more employment and *reduce* GDP?

Are you ignoring these things ‘on purpose’ in order to spin your fantasy vision of the future?

If you’re not familiar with this man, Google, “Igor Panarin”. He has some interesting (and frightening) thoughts on the future of the U.S.

Are Panarin’s theories correct? I dunno. But, in 1989 when Bush-41 was being sworn into office, nobody would have predicted the collapse of the Soviet Union within two years. But in 1989, nobody would have said it was impossible, either.

You are far too inept, uneducated and a bitter clinger to be responsible for anything as an individual, you need liberals to run your life.

Conversely, you (as long as you are not a privileged member of an approved minority group) are responsible for collective issues (racism, sexism, anti-gayism, imperialism, capitalism) and therefore must PAY, PAY, PAY!

3. At least for now, America doesn’t have nearly as much debt as Greece and, countries with similar amounts of debt don’t necessarily collapse.

The United States Public Debt, the kind of debt that taxpayers really pay net interest on, is at a worrisome 67 percent of GDP and, if current projections hold (which they probably won’t) is only expected to hit about 75 percent in the next few years. Greece ran into trouble and saw credit downgrades when debt hit 125 percent of GDP. Even if the United States did run up a public debt like this—and that’s certainly within the realm of possibility—it won’t necessarily mean an immediate call for Greek-style austerity measures or a need for a rescue package.

A Greek-like expansion of debt here in the United States would be disastrous because of its SCALE. The Greek debt is $400 billion for a population of 11.3 million. That’s huge for a country of its size ($35,000 per capita), but Greece CAN be bailed out because $400 billion is not a huge amount of money for the European Union (only about $1,100 per capita).

If the United States ran up debt comparable to Greece, and the world financial markets refused to fund it, there is no one big enough to bail US out! Greece was bailed out by a European Union with about 30 times the population of Greece. There is no entity in the entire world with 30 times OUR population (about 9 billion people), since the population of the entire world is only about 6 billion people!

The United States is “too big to fail”, so we must stop the ruinous spending BEFORE it fails!!!

If Japan can hold 200% debt to GDP and not collapse, I’m sure the US can hold much more than 90% if it has too. In fact is has in the past.

jp on May 12, 2010 at 12:40 PM

I wouldn’t recommend it. We may have gotten away with it when we had a large and profitable industrial base and smaller permanent government burden along with all the public service union retirement costs that go with it. And we didn’t have the monster unfunded liability of Medicare either. And the demographics were completely different as well (more youths, fewer elderly). It’s a completely different and much worse scenario now. I’d say Japan, Europe and the US are in deep doodoo.

True but we owed it to ourselves. Every dollar that went to pay debt service went into the private American economy. Also, we were the only country in the world to survive the war with our industrial plant intact.

True but we owed it to ourselves. Every dollar that went to pay debt service went into the private American economy. Also, we were the only country in the world to survive the war with our industrial plant intact.

lonesomecharlie on May 12, 2010 at 1:08 PM

Yep. I think the USA had about 50% of the industrial capacity of the whole world at the end of WWII. No medicare nor a slew of other government expenses. A demographic profile with many young people for each elderly person, and on and on and on. The two situations couldn’t be much more different. We’re in big trouble now and we weren’t then.

We’re in debt now and it doesn’t seem to matter because the government can print as much money as it wants and as long as people accept it and spend it, it doesn’t seem to matter.
.
I would appreciate it if someone could explain to me the fallacy in this argument.

Jp doesn’t address why we should hold that much debt and also doesn’t address the effect that much debt has on growth. We incurred large debt during a world war for our survival. Now we have burdensome debt so we can name airports after corrupt congressmen.

ANY way you look at it, the debt stream we are on is bad. There is no difference between our own personal finances and budgets and the Fed’s. Just more zeros and places to the left of the decimal. Debt when it becomes larger than is manageable is bad. Period. We have to have responsible people and people of integrity in places of authority all throughout our government system in order to stop this financial insanity. Pray that kind of shift occurs this November. Pray. We, US, desperately need a WWF Smackdown of the Left come November.

The failure of progressivism and nanny state governments is clear for all to see. Greece, Portugal, Spain, Israe and England are all prime examples of governments on the verge of economic collapse due to excessive government spending and growth.

It seems that people are oblivious to the obvious warning signs that are around us and won’t think it will happen here.

I worry for those who say “All is well in America and what happens around the world cannot happen to us!”

Y’all are deluded. We are NOT going to stop spending, we are NOT going to stop raising taxes, we are NOT going to stop the Fed and banksters from picking our carcasses clean. The Road leads to only one destination at this point: collapse.

I do not doubt the basic goodness of the American people, nor do I doubt our ability to knuckle down and pull ourselves up by the bootstraps when a crunch comes. It is, however, too late to change the trajectory of the economy. Even if politicians were brave enough to begin telling the truth, the numbers of people who would have to give up their rice bowl are just too large. A realistic analysis would show that the federal government would have to cut SS, Medicare, public pensions in half and eliminate half the cabinet level departments. The states would have to fire half their employees, shutter 75 percent of their agencies, slash mandated spending, and gut pensions that are currently contractually binding.

Even a 10 percent cut across the board is NOT going to do it. It would take years for a 10 percent cut to just get the deficits back close to zero, leaving the monstrous debt and unfunded liabilities unaddressed.

Nope. This sucker collapses because the politicians and bankers are NOT going to be the ones left holding the bag as a result of bravery. All their incentives work in exactly to opposite direction, and the American people that were too busy to keep tabs on them didn’t wise up until too late. Sorry, but the music is going to stop and 305,000,000 chairs are going to be missing.

A GOP victory in November doesn’t mean it’s 2005 or 2004 or … again.
The “Bob Bennett” message has got to be understood.
It was bad enough when politicians wanted to ‘spend it all.’
Now ‘spending it all’ is just the beginning.
It won’t and can’t be in the future.